The Bangko Sentral ng Pilipinas (BSP) has approved the latest round of rules to the peso-denominated real time gross settlement system (RTGS PS) or the PhilPaSSplus, after it was designated as a systemically important payment system (SIPS).
The BSP updated and amended the RTGS PS rules since as SIPS, it could pose systemic risks and threaten the stability of the National Payment System (NPS), which ensures the circulation of money or movement of funds in the country.
Circular memo (Memorandum No. M-2022-049), which was approved on Nov. 22, BSP Governor Felipe M. Medalla, stated that the RTGS PS is “critical for maintaining price and financial stability, as well as preserving public interest.”
“This payment system ensures the smooth flow of funds between financial institutions that maintain settlement accounts with the Bangko Sentral. lt also facilitates funds transfers in financial markets where these institutions trade securities and foreign currencies for business and risk management purposes,” he said.
Medalla also emphasized that by providing the settlement facility for the open market operation, the RTGS PS “plays an indispensable role in upholding public welfare, enabling the efficient and low-risk settlement of retail payments in central bank money.”
The BSP owns and manage the RTGS PS. The new rules, which was released on Thursday, Nov. 24, apply to all RTGS PS participants such as banks and other financial institutions, financial market infrastructures (FMls), clearing switch operators (CSOs), and critical service providers (CSPs).
The Monetary Board oversees the RTGS PS Management Committee or ManCom responsible for its “safe, efficient, and reliable operation” and to make sure the SIPS is compliant with the NPS and other regulations.
The ManCom’s functions include the review of policy proposals and amendments to the operation of the payment system and to implement programs, policies, and procedures, to ensure that the operation of the RTGS PS aligns with global standards or best practices.
The ManCom is also tasked to collaborate with the industry, local regulators, and foreign central banks.
The new rules clarified the participants to the RTGS PS.
As defined by the BSP, the FMIs are infrastructures interlinked with the RTGS for the settlement of security, foreign exchange, and other financial market transactions.
The CSOs are clearing organizations with BSP authority to interconnect with the RTGS system while CSPs are technology companies that provide solutions vital to the operation of the RTGS PS.
Earlier this month, the BSP released two draft circulars relating to the RTGS PS, such as revisions to the checks clearing and settlement operations and the guidelines for the intraday liquidity facility for eligible participants.
The Switzerland-based Bank for International Settlements (BIS) issued the guidelines for the SIPS.
A BIS paper said SIPS are an “essential mechanism supporting the effectiveness of financial markets (but) they can also transmit financial shocks.” This is particularly true for “poorly designed systems” that “may contribute to systemic crises if risks are not adequately contained, with the result that financial shocks are passed from one participant to another.”
Such system-wide disruption and threats to the stability of money markets is what makes SIPS crucial for the economy, said BIS, noting that “their safety and efficiency should be objectives of public policy.”